Tags: cryptocurrency | regulation | demand | bitcoin

Regulation May Lead to Further Decline in Demand for Cryptocurrencies

Regulation May Lead to Further Decline in Demand for Cryptocurrencies

By    |   Tuesday, 20 March 2018 07:59 AM

Today, starts the 2-day Federal Open Market Committee (FOMC) meeting that will raise the Fed funds rate by probably 0.25 percent.

The most important event will be the new Fed Chair Jerome Powell’s press conference after he FOMC meeting where he will have to explain his views on Fed policy, the economy, inflation, employment, and so on…

Besides that, today, there are no economic data of importance in the U.S.

In Europe, the UK’s long goodbye from Europe has been confirmed as an even longer goodbye from Europe which is important. The UK has agreed to allow the European Union (EU) access to the UK single market on the same terms as today for a 21-month transition period after the exit which hereby should be extend till the end of 2020. The UK coincidentally will also have access to the EU single market for this period.

Essentially, nothing of importance changes for 21 months after the March 2019 exit date other than the fact that the UK loses voting rights over EU decisions.

Investors could take note that the deal still depends on a broader agreement on Britain’s withdrawal, which is to be finalized this year and is still by no means certain as one of the main sticking points remains the talks about the border between Northern Ireland, which is part of the UK, and Ireland, which will remain in the European Union.

The transition agreement, even it is not yet legally binding but is expected to pass, is seen as a demonstration of the relative strength of Prime Minister May’s position domestically.

For markets, the point is that this, once again, signals the prospects of a relatively “soft” exit from the EU.  

I think that further sterling gains are in the cards and that the GBPUSD could rise to $1.45 per pound sterling over a 6-month time space as less uncertainty will allow the Bank of England to focus more on reining in inflation.

Meanwhile, the G20 finance Ministers and central bankers are meeting for a taxpayer financed mini-break in Buenos Aires, Argentina. Here is the faintest of faint hopes that the G20 might actually do something. Not in the sense of actually doing something of course, but in the sense of talking about actually doing something.

The G20 is to talk, not to act, about regulating the cryptocurrency bubble.

Digital anarchists will no doubt protest that the whole point of their bubble is that it is above government regulation, but technology is in fact subordened to government regulation as a number of technology companies are currently finding out.

The bubble, like all bubbles, transfers wealth from a large number of bubble-buyers to a small number of bubble-sellers. Many believe that regulation is required because many bubble-buyers are being misled to buying the bubble through misleading or dishonest representations of bubble-sellers.

The key issue from an economic point of view is that regulation or talk of regulation may lead to a further decline in demand for cryptocurrencies. Supply of cryptocurrencies can only rise, it can never fall. If demand goes down and supply cannot go down, the effect on value is obvious and potentially quite painful to bubble-holders.  

In the meantime, we just got some price data from Germany and he UK.

German producer price inflation (PPI) rose by 1.8 percent year-on-year in February, which was down from 2.1 percent in January and below market consensus of a 2 percent gain. It was the lowest producer price inflation (PPI) since December 2016. Costs increased at softer paces for all categories of products.

As producer price inflation (PPI) is a reflection of corporate pricing power; what is going to be of interest in the German PPI data in the future is the extent to which exporters pricing strategies are altered by the effects of the various Trump taxes on trade.

In the UK, producer price inflation (PPI) came in unchanged d from January at 112.

The discredited retail price inflation came in at 3.6 percent and is  inflated by statistical error, but this matters to inflation-linked bond holders.

Consumer price inflation (CPI) fell to 2.7 percent in February 2018 from 3 percent in January and below market expectations of 2.8 percent.

The BoE is expected to raise rates in Q2 of this year, even with the slight moderation in the inflation rates, bearing in mind the wider position of the UK economy and the recently agreed position with the European Union.    

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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Supply of cryptocurrencies can only rise, it can never fall. If demand goes down and supply cannot go down, the effect on value is obvious and potentially quite painful to bubble-holders.  
cryptocurrency, regulation, demand, bitcoin
Tuesday, 20 March 2018 07:59 AM
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